2. (12 points) You have the following information from the records of a restaura
ID: 2561316 • Letter: 2
Question
2. (12 points) You have the following information from the records of a restaurant Sales Revenue Wage Cost January February March April May June July August September October November December TOTALS $11,200 13,000 14,900 19,100 22,000 24,200 26,300 27,400 23,500 20,100 18,200 16,000 S235,900 S5,300 6,100 6,200 7,000 9,000 9,600 9,700 10,100 8,300 7,600 8,000 7,100 S94,000 (4 points) Use the high-low method to calculate total fixed cost and total variable cost for the year. a. b. (8 points) Complete a regression analysis to determine total annual fixed and variable costs using the sales revenue and wage costs shown in a. Compare regression analysis results with the results obtained in a, and comment about the results between the two different methods used to find total annual fixed and variable costsExplanation / Answer
Answer 1
Level
sales revenue (x)
wages cost (y)
High level
27400
10100
Low level
11200
5300
Difference
16200
4800
Variable cost per dollar sales (4800/16200)
$0.30
Fixed cost = (?)
Fixed cost
wages cost for 27400 sales revenue
$10,100
Variable cost for 27400 (0.30*27400)
$8,220
Fixed cost
$1,880
As per high low method, total fixed cost and total variable cost for year
Total annual fixed cost (1880 * 12months)
22560
Total variable cost for year ( 235900*0.30)
70770
Answer 2
Month
Sales revenue (x)
Wages cost (y)
X*y
X2
January
11200
5300
59360000
125440000
February
13000
6100
79300000
169000000
March
14900
6200
92380000
222010000
April
19100
7000
133700000
364810000
May
22000
9000
198000000
484000000
June
24200
9600
232320000
585640000
July
26300
9700
255110000
691690000
August
27400
10100
276740000
750760000
September
23500
8300
195050000
552250000
October
20100
7600
152760000
404010000
November
18200
8000
145600000
331240000
December
16000
7100
113600000
256000000
Total
235900
94000
1933920000
4936850000
Mean
19658.33
7833.33
XY = 1933920000
n = 12 months
x = mean of sales value = 19658.33
y = mean of wages cost = 7833.33
X2= 4936850000
x2 = 19658.33*19658.33 =386449938
b1 = (XY-n x y)/ (X2-n x2)
= [1933920000-(12*19658.33*7833.33)] / [4936850000 - (12*386449938)]
= [1933920000 -1847882233] / [4936850000 -4637399256]
= 86037766/299450744
= 0.2873
b0 = y - b1 * x
b0 =7833.33- (0.2873*19658.33)
= 7833.33 – 5647.84
= 2185.49
Regression equation is: = 2185.49 + 0.2873x
Total fixed cost for year (2185.49*12)
26225.88
Total variable cost for year ( 235900*0.2873)
67774.07
Summary of answer
Method
Fixed cost
Variable cost
Total cost
High low method
$22,560.00
$70,770.00
$93,330.00
Regression analysis
$26,225.88
$67,774.07
$93,999.95
Regression method is more reliable because it consider whole data i.e. information of 12 months
High low method is less reliable because it consider data of two months (high level and low level)
Level
sales revenue (x)
wages cost (y)
High level
27400
10100
Low level
11200
5300
Difference
16200
4800
Variable cost per dollar sales (4800/16200)
$0.30
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